Lesson 71 - Boom and Bust Cycles

Economies move in cycles. Periods of fast growth are often followed by slowdowns or recessions. These ups and downs are called boom and bust cycles. They matter because they affect jobs, incomes, investment returns, and government finances. Understanding why cycles happen and how they unfold helps you prepare for both good and bad times.

<section class="sect">
            <h2>What is a boom?</h2>
            <p>
              A boom is a period when economic activity grows faster than
              average. Output, employment, and incomes rise. Businesses invest,
              consumers spend freely, and governments collect more taxes. Booms
              often feature optimism, rising stock prices, and easy credit. But
              they can also create bubbles if growth is based on speculation or
              excessive borrowing.
            </p>
          </section>

          <section class="sect">
            <h2>What is a bust?</h2>
            <p>
              A bust, or downturn, is the contraction that follows a boom.
              Spending slows, investments are postponed, and unemployment rises.
              Busts can be mild recessions or severe depressions. While painful,
              busts also correct excesses from the boom, bringing prices and
              expectations back in line with reality.
            </p>
          </section>

          <section class="sect">
            <h2>Table: Phases of the business cycle</h2>
            <img loading="lazy" src="/table/lesson71.png" alt="Phases of the business cycle" />
          </section>

          <section class="sect">
            <h2>Graph 1: Stylized business cycle</h2>
            <p>
              The graph shows a simplified business cycle as GDP rises and falls
              around a long-term growth trend.
            </p>

            <div class="chart-container">
              <canvas id="cycleGraph71"></canvas>
            </div>
            <p class="chart-note">
              The cycle oscillates around the trend line of long-run growth.
            </p>

            <script src="https://cdn.jsdelivr.net/npm/chart.js"></script>
            <script>
              const ctx71a = document.getElementById("cycleGraph71");
              new Chart(ctx71a, {
                type: "line",
                data: {
                  labels: [
                    "2000",
                    "2002",
                    "2004",
                    "2006",
                    "2008",
                    "2010",
                    "2012",
                    "2014",
                  ],
                  datasets: [
                    {
                      label: "Actual GDP",
                      data: [100, 110, 125, 135, 120, 130, 140, 160],
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            </script>
          </section>

          <section class="sect">
            <h2>Graph 2: US unemployment and GDP growth</h2>
            <p>
              This chart compares GDP growth and unemployment in the US to show
              how booms lower joblessness and busts raise it.
            </p>

            <div class="chart-container">
              <canvas id="usCycleChart71"></canvas>
            </div>
            <p class="chart-note">
              Recessions line up with rising unemployment and negative GDP
              growth.
            </p>

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              const ctx71b = document.getElementById("usCycleChart71");
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                  labels: [
                    "2007",
                    "2009",
                    "2011",
                    "2013",
                    "2015",
                    "2017",
                    "2019",
                    "2021",
                  ],
                  datasets: [
                    {
                      label: "GDP Growth (%)",
                      data: [2, -2, 2, 1, 3, 2, 2, -3],
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                    {
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          </section>

          <section class="sect">
            <h2>Story: The Dot-com boom and bust</h2>
            <p>
              In the late 1990s, internet companies attracted massive investment
              despite lacking profits. Stock prices soared. By 2000, the bubble
              burst. The Nasdaq index lost nearly 80 percent of its value. Many
              companies failed, but the bust also cleared the way for stronger
              firms like Amazon and Google. This story shows how booms and busts
              can reshape industries.
            </p>
          </section>

          <section class="sect">
            <h2>Why cycles matter for you</h2>
            <p>
              Booms bring jobs, higher wages, and investment opportunities.
              Busts bring layoffs, lower asset prices, and tighter credit.
              Recognizing the cycle helps you prepare - by saving more in good
              times, diversifying investments, and avoiding too much debt.
              Governments and central banks also react to cycles with fiscal and
              monetary policies aimed at smoothing the ride.
            </p>
          </section>

          <section class="sect">
            <h2>Summary</h2>
            <ul>
              <li>
                Boom and bust cycles are natural patterns of economic ups and
                downs.
              </li>
              <li>Phases include expansion, peak, contraction, and trough.</li>
              <li>
                Charts show GDP relative to trend and links between growth and
                unemployment.
              </li>
              <li>Cycles matter for jobs, incomes, and investments.</li>
            </ul>
          </section>

          <section class="sect">
            <h2>Key Terms</h2>
            <ul>
              <li><a href="#">Business Cycle</a></li>
              <li><a href="#">Boom</a></li>
              <li><a href="#">Bust</a></li>
              <li><a href="#">Recession</a></li>
            </ul>
          </section>

          <section class="sect">
            <h2>Further Learning</h2>
            <ul>
              <li>
                <a
                  href="https://www.nber.org/research/business-cycle-dating"
                  target="_blank"
                  rel="noopener"
                  >NBER - Business Cycle Dating</a
                >
              </li>
              <li>
                <a
                  href="https://www.imf.org/en/Publications/WEO"
                  target="_blank"
                  rel="noopener"
                  >IMF World Economic Outlook</a
                >
              </li>
              <li>
                <a
                  href="https://www.investopedia.com/terms/b/businesscycle.asp"
                  target="_blank"
                  rel="noopener"
                  >Business Cycle - Investopedia</a
                >
              </li>
            </ul>

            <div class="book-card">
              <div class="meta">
                <div class="title">
                  <strong>Book:</strong> Manias, Panics, and Crashes
                </div>
                <div class="by">
                  by Charles P. Kindleberger and Robert Aliber
                </div>
              </div>
              <a
                class="btn solid amazon"
                href="https://www.amazon.com/dp/0230365353"
                target="_blank"
                rel="noopener"
                >View on Amazon</a
              >
            </div>
          </section>

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